March 8, 2013 by bradcharlesbeals
If you’re like me, you learned about the robber barons of the early 20th century in high school. Probably in US history. Maybe economics. Today they’re still trotted out by gov’t interventionists as the sure-fire argument stopper to free-market capitalism.
But the whole robber-baron narrative rests on a false history. Contrary to what we’ve been taught, the robber barons did not ascend to power through free-market competition. They ascended out of free markets and through the interventions of the federal government.
Concerned about the falling prices (and falling profits) that resulted from competition in the steel industry, Andrew Carnegie didn’t become leaner and more efficient. He didn’t cut costs or innovate new production methods to gain market share. He simply quit the free market and ran to Uncle Sam for protection. “It always comes back to me,” he once quipped, “that government control, and that alone, will properly solve the problem.”
The problem, of course, was not how to best compete, it was how to maintain a monopoly. He knew he couldn’t do it alone. It required government regulation to make it happen, regulation that would provide for a few giants to go on as cash cows while keeping the pesky little guy out. Keeping the giants separated–the anti-trust provisos–would comprise the public face of it.
And there you have it–an abstract for the history texts: “federal government regulation prevents monopolies.” Never mind that every middle to small operator in the industry gets squeezed out, that all profits are now consolidated in a few companies. Never mind that the prices that should have fallen are now propped up artificially. And never mind that free-market competition was the very thing threatening the monopoly of the giants before the feds stepped in.
So we can add this to our history notes from high school: it was cronyism, not capitalism that established the robber barons.